CBO: US economy to slow in 2019 - Reuters

As reported by Reuters, the Congressional Budget Office (CBO) is warning that growth for the US could decline next year as fiscal stimulus begins to wear off.

Key quotes

"In an updated economic outlook, the nonpartisan Congressional Budget Office (CBO) projected that inflation adjusted or real gross domestic product (GDP) would grow 3.1 percent this year, exceeding 2.2 percent growth in 2017 due to lower income taxes, increased government spending and private investment.

The government slashed corporate and personal income taxes in January in a $1.5 trillion package and the U.S. Congress passed a $1.3 trillion spending bill in March.

But the CBO said it expected growth to slow in the second half as jolts to consumer spending and agricultural exports either fade or reverse. For instance, some second-quarter soybean exports were aimed at beating Chinese tariffs that took effect in July and cut future shipments.

“In 2019, the pace of GDP growth slows to 2.4 percent in the agency’s forecast, as growth in business investment and government purchases slows,” CBO director Keith Hall said in a statement.

Republicans have said the tax cuts, which increased the nation’s debt, would pay for themselves through strong economic growth. The Trump administration has said the economy can sustain 3.0 percent growth over the long term, an assertion many economists have disputed.

The CBO also cautioned that trade tensions could make a bigger dent on GDP growth than anticipated. An escalating U.S.-China trade war could result in tariffs on all goods traded between the world’s two largest economies.

“When CBO completed this economic forecast in early July, the agency estimated that the macroeconomic consequences of the U.S. tariffs and foreign retaliatory tariffs that had been implemented at that time would be small,” said Hall.

Tariffs then “affected goods that accounted for less than 1.5 percent of the total value of U.S. trade. However, trade policy has already changed since early July and may continue to evolve, so the effects of new tariffs may become more substantial and have a larger effect on the economy than CBO accounted for in its current projections.”

From 2023 to 2028, the CBO forecast the economy growing by about 1.7 percent each year."